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By: Norvisi Mawunyegah
The US trade deficit shrank to $68.9 billion in April as the global economy improved, boosting sales of American goods. The April deficit, defined as the difference between what America buys from overseas and what it sells to foreign nations, was down 8.2 percent from a record $75 billion deficit in March, according to the Commerce Department.
Demand for American goods increased as the global economy improved, but demand for imports decreased. Exports of goods and services from the United States increased 1.1 percent to $205 billion in April, while imports fell 1.4 percent to $273.9 billion. A $1.4 billion rise in civilian aircraft sales contributed to the increase in exports, indicating that a recovery in air travel from post-pandemic lows is resulting in higher jetline sales.
The decrease in imports was due to a $1.1 billion drop in purchases of foreign-made automobiles and parts. The US trade imbalance has reached $281.7 billion in the first four months of the year, up 50.4 percent from the same period in 2020, when the US economy was largely shut down due to the coronavirus pandemic.
In April, the politically sensitive gap with China dropped to $25.8 billion, down 6.7 percent from March. However, the US deficit with China, which is the highest of any country, increased 37.1 percent in the first four months of this year compared to the same time the previous year. The goods deficit was $86.7 billion, with a $17.8 billion surplus in services. The US has a service trade surplus, which helps to reduce the goods deficit. The coronavirus, on the other hand, has taken a toll on the services economy, which includes travel payments such as airline prices, with the service surplus down 16.2% so far this year compared to the same period last year.
While many economists are forecasting that the trade deficit will continue to drop in coming months, some analysts are worried that the recovering U.S. economy will continue to favor foreign-made products.
“Domestic demand is roaring back amid reopening and a rapidly improving health backdrop,” said Mahir Rasheed, U.S. economist at Oxford Economics. “The trade deficit is poised to widen further as the fiscally powered, consumer-driven recovery in the U.S. runs ahead of the global economic rebound.”
But Michael Pearce, senior U.S. economist, said he believed trade would provide a slight boost to overall economic growth in the current April-June quarter, helped by an improving performance of U.S. exports. That would be an improvement from the big drag to economic growth from trade in the first quarter. During his four years in office, Donald Trump pursued a get-tough trade strategy that used punitive tariffs on other country’s exports in an effort to lower America’s huge trade deficits with the rest of the world, which he blamed for the loss of millions of American manufacturing jobs.
But Trump’s efforts failed to alter the trade imbalances. So far, the Biden administration has left most of the penalty tariffs in place as his administration works to determine the approach it will take to trade.